October 28, 2008 – How can we better compete in the Canadian and global marketplace? The answer is knowing what the challenges are in the marketplace and addressing potential solutions for their consideration.
These solutions need to be relevant to both the consumer and the retailer. To better understand how, as a business, we can provide relevance to this market, it is first necessary to understand some of the key issues affecting it. And we need to understand both the consumer and retailer challenges.
Global consumer business trends are becoming more and more relevant in Canada, increasing pressures on margins and profitability to further polarize winners and losers domestically. Successful retailers will either be large and dominant, and help consolidate the sector, or they will be discount retailers, which have high cost efficiency and value propositions to support rapid expansion. The rise of niche or specialty retailers should not be discounted either as the middle class grows wealthier in Canada and around the world.
The Canadian consumer is older (by 2030, Canadians over 65 will make up 25 per cent of the population), time pressured (more than 50 per cent of Canadian are stressed out), well-being focused, Internet connected, and discerning, according to AC Nielsen.
While the shift in spending to services away from goods that will occur as a result of an aging consumer market is still distant, retailers can expect the share of spending to shrink for some products. Of more immediate concern is the role of technology, which creates information parity – and an empowered consumer is not necessarily a loyal consumer. The result will be fragmented shopping experiences and an increasing indifference to brands.
To add to the challenge of targeting and appealing to today’s consumers, Canadians are also far more complex to serve than in the U.S. because of demographic factors, such as high levels of cultural diversity and changing family dynamics, which means a one-size-fits-all shopping experience no longer applies.
More than half of all Canadians say they value retail service according to an AC Nielsen survey. And while half of all Canadians say retail service is positive, 26 per cent say quality has decreased slightly. Given the pressure to improve productivity, customer service has been sacrificed by some Canadian retailers. However, the majority of Canadians (64 per cent) expect a minimum level of service regardless of price. And only one in five Canadians are willing to pay more for better service.
Because consumers increasingly view goods as commodities of equal value – there are too many similarities between stores and products – often shopping is no longer fun or novel. Canadian retailers should differentiate themselves through strong experiential branding, for example, providing a compelling shopping experience with improved customer service, and with the use of personalized direct marketing.
In late 2005, Wal-Mart unveiled a plan to boost energy efficiency, cut down on waste and reduce greenhouse gases tied to global warming, signifying an important trend. There is an increasing corporate awareness that long-term, sustainable green strategies can actually result in long-term company savings and net more growth among scrupulous consumers. It can also prevent corporate backlash by activists.
Consumers increasingly want clean, efficient products, and they will respond positively to companies that become good stewards for the environment. Successful retailers should look for ways to cut solid waste, reduce energy use at their stores and cut greenhouse gases. They should also explore ways to carry more green products, such as organic cotton or recyclable materials.
Retail pressure will consistently focus on driving growth, whether it is organic, through new channels of distribution or mergers and acquisitions. Canadian retailers will experience further consolidation in some sectors, expansion of the largest retailers and an ongoing blurring of the product offers between traditional retail sectors. Ultimately, the retailers who will achieve sustainable growth will be those that pinpoint new opportunities to boost profit margins, develop feasible business strategies and act on them in a timely manner.
So where can you leverage your production processes, innovative products and technology to complement the consumer and the retailer? Those businesses that can provide a “value-added” benefit through their product to the consumer via the retailer will be the ones that gain market share; for example, health claims for various plants, herbs, etc. as insecticides, air-purifiers, burn ointments, and the like.
In marketing a differentiated product and building the awareness at the retail level and purchasing point, the retailer can take advantage of “green-solutions” and products that reduce their environmental impact – in this case creating positive impacts. This approach can also be applied by retailers as a solution to satisfy their need to minimize their impact on the environment. For example, retailers can use large retail space to sell environmental solutions and use plants to absorb excess retail heat and water runoff to create a “greening” of the retailer. The plant can then be recycled for resale and the process can start again.
Carlos Lobo is a senior manager with Deloitte’s Client & Markets group. He can be reached at 905-315-6775, or clobo@deloitte.ca.
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